ASIC to intensify approach to policing audit quality

ASIC’s latest audit inspection report for 2018-19 found that one in four (26 per cent) auditors did not obtain reasonable assurance that the financial report was free from material misstatement.

This figure relates to 207 key audit areas that ASIC reviewed across 58 audit files at 19 Australian audit firms of varying sizes.

The largest number of adverse findings were in the audit of asset values, particularly impairment of non-financial assets and the audit of revenue. The results compare with  24 per cent of key audit areas in the 18 months to 30 June 2018 and 25 per cent in the 18 months to 31 December 2016.

Looking at the individual scores of the top four accounting firms, ASIC revealed that 32 per cent of Deloitte's files were found be inadequate in the 12 months to 30 June 2019, equal to the 18 months to 30 June 2018. KPMG led the pack with 33 per cent of adverse findings, growing from 21 per cent in the previous period, while Ernst & Young maintained its previous result of 22 per cent. 

PricewaterhouseCoopers was the least erroneous among the top four, with 18 per cent of its reviewed audits found to lack reasonable assurance that they are free from error, up from 12 per cent in the previous period. 

“While firm action plans to improve audit quality remain important, the continuing overall level of adverse findings from our audit files reviews needs to be addressed,” said ASIC commissioner John Price.

“ASIC will adopt a more intensive supervisory and regulatory approach in this regard.”

To ensure higher audit quality, ASIC has already implemented its 'why not litigate' approach to auditor conduct matters. The regulator also reviews how conflicts of interest are managed within firms, firm culture and accountability mechanisms on audit quality, and firm talent for quality audits.